President Trump announced there will be limitations upon Chinese companies being allowed to invest in American tech companies. It’s possible this is justified — we already do this on national security grounds sometimes, don’t we?
We would prefer that foreigners don’t own our warhead production factories either, even if we’re happy enough to sell them the uranium mines.
It’s also often true that such national security concerns are the guise under which more basic policies are enacted. That will ever be so — after all, people work out how to tickle the body politic in the right place to gain their desires.
The claimed idea is that companies with at least 25 percent Chinese ownership will not be allowed to buy into companies with “industrially significant technology.” Who gets to make that determination will be an interesting question. And the politicking and lobbying around it will be intense. Of course, this industrial policy is also being brought in under that national security exemption — the exemption being to the normal rules of a market economy where people get to decide who they sell their property to themselves.
That’s what this amounts to. It might not meet the legal definition of a “taking” in the constitutional sense and we all agree that national security changes either the rules around, or the desirability of, a taking. But it’s taking some of the value of one’s property all the same.
The current value of all American tech, or companies that own “industrially significant technology,” depends upon the number of buyers of stock in those companies and what those people are willing to pay. Cut out of the market some of the major players — Jack Ma’s Alibaba is not exactly unknown as a buyer of smaller companies after all — and the
value of all companies even potentially for sale in that market falls.
There’s also the little point that Chinese companies buying in is capital moving into the U.S. We normally like it when foreigners invest here because it makes us richer.
But sadly it gets worse than this. The desire to invest in a sector, the desire to even save to invest in anything at all, is somewhere between governed and heavily influenced by the profit we think we’ll make. Our observations of what we might make are governed by what comparable and successful investments go for now. If all such companies are now less valuable as a result of excluding any Chinese buyers then we rightfully assume there will be less American investment into the same sectors, even just less overall.
All of the above is true. What we’re not entirely certain about is how important it will be. As with so much in economics we can state with certainty that a particular effect will indeed happen — it’s vastly more difficult for us to work out how much of it will. Cutting Chinese investment out of the interesting parts of the American economy will indeed lead to less investment overall. That will make us poorer over time.
On the other hand, we’ve got that distinction between A-bomb mines and A-bomb warheads. National security really does create some exceptions. As long as the limitations are restricted to only those things where they are absolutely necessary for security then we’ll be fine.
So, the administration has thought carefully through the effects on asset prices and stock values and the subsequent impact on capital creation and domestic investment into the tech and industrial sectors, hasn’t it? Balanced that with the security issues involved?
Yes, of course they have. They couldn’t possibly just be invoking national security in order to annoy the Chinese, now could they?
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
